Budget shortfalls reduce IT

Budget shortfalls reduce IT

By Wilson P. Dizard III

Aug 29, 2001

Plummeting tax revenues are forcing many states to scale back information technology budgets and the programs they fund.

But the cutbacks aren't universal. IT spending is holding steady or increasing in other states where revenues have held up or where governors and agencies have turned to technology as an efficiency tool despite revenue conditions, according to budget analysts and chief information officers.

Aldona K. Valicenti, Kentucky's CIO and president of the National Association of State CIOs, said that about 30 states are facing budget shortfalls this year.

'We are experiencing a revenue shortfall in Kentucky,' Valicenti said. 'At times like this, we are looking at projects we can slow down a little bit or elongate ' and whether there are some things we can look at not doing at all.'

Valicenti expects Kentucky's revenue shortfall for fiscal 2002, which started July 1, to be $320 million out of a budget of about $7 billion.

'But the governor has exempted all education spending from any cuts, which means we have to look at other areas,' she said.

Among the hardest-hit state IT programs are those in Iowa, Missouri, the Carolinas and Tennessee.

Iowa's IT Department faces a 31 percent reduction in its operating budget, from $4.6 million in fiscal 2001 to $3.2 million this year.

As a result, the department announced a 50 percent reduction in spending on projects to let residents access government services electronically.

Down in Iowa

Iowa officials are also seeking price reductions from vendors.

'This is going to delay how quickly we can move to electronic-government solutions that will improve the lives of people in Iowa,' said Sandy Dell, the department's chief financial officer. 'Other state departments face budget reductions as well, so they are requesting more services while our resources have been reduced.'

Missouri CIO Jerry Wethington said his department is delaying and suspending projects because of a mandatory withholding of 18 percent of fiscal 2002 appropriated funds imposed by Gov. Bob Holden as a result of declining tax revenues.

'We have scaled back our electronic government initiatives,' Wethington said. Missouri won't move to electronic marketing of state products, and electronic purchasing for state agencies has been put on hold.

'We will continue to maintain the brick-and-mortar operation,' he said.

North Carolina CIO Ron Hawley said the state's IT Office faces a budget reduction of about $11 million from last year's total of $272 million, based on proposals in the state's House of Representatives and Senate.

'We are supported totally by receipts from other agencies,' Hawley said. 'We will have to reduce the amount we charge state agencies, especially for telecommunications and mainframe computing services.' North Carolina faces a $167 million gap in its budget of approximately $14 billion, according to the National Conference of State Legislatures (NCSL).

South Carolina CIO Matt DeZee described his state's budget situation as grim, saying departments are undergoing 15 percent cuts across the board. South Carolina spent about $240 million on IT last year, DeZee said. Although South Carolina likely will lay off some employees, IT personnel probably will be retained, he said.

Tennessee CIO Vic Mangrum said the IT impact of his state's budget crunch isn't known yet because Gov. Don Sundquist and the Legislature haven't agreed on a fiscal 2002 budget. But the state faces a revenue shortfall of about $600 million in fiscal 2002, which is 9.1 percent of last year's budget, according to policy analyst Nick Jenny of the Rockefeller Institute of Government in Albany, N.Y.

Some states gain

On the other side of the ledger, 18 states experienced revenue growth exceeding 5 percent in fiscal 2001, and five states had revenue growth greater than 10 percent, according to NCSL. Three of the states with fast revenue growth'Alaska, New Mexico and Oklahoma'attributed their gains to robust energy prices.

Also, some states that have suffered revenue shortfalls have maintained or boosted IT spending anyway, in an effort to make agency operations more efficient.

For example, James Bryce, deputy director of the Alabama Finance Department, said that IT spending has increased in his state even though tax revenue has decreased.

'In part this is a catch-up process,' Bryce said. Gov. Don Siegelman 'is interested in technology and supports the use of technology to serve the state's needs. ' Because technology had been ignored, upgrading of systems and equipment has been necessary.'

Siegelman also is working to resolve long-standing federal court cases involving child welfare and conditions in mental health institutions in part by providing PCs for state employees, Bryce said. He added that Alabama also is in the midst of automating electronic storage and transfer of vital records, court documents, tax documents and police data.

In Kansas, the state IT budget will be 'fairly level' in fiscal 2002 at about $206 million, CIO Don Heiman said.

Even though Kansas' overall budget is likely to shrink in fiscal 2003, according to Heiman, IT budgets could be protected.

'When budgets are tight, some agencies look to IT for efficiencies that lead to savings,' Heiman said.

Pennsylvania is maintaining its IT spending, as a means to increase efficiency and help attract new businesses, CIO Charles F. Gerhards said. 'We have done well. ' Certainly we haven't seen a significant cut in IT spending. We have more this year than last.'

Budget climb

Gerhards' IT Office has seen its budget increase from $137 million last year to $190 million in fiscal 2002. The office represents only part of the state's IT spending.

'These increases aren't [the result of] incremental operating costs; these are new initiatives,' Gerhards said. He cited new Pennsylvania IT projects such as the adoption of a mySAP.com enterprise resource planning system from SAP America Inc. of Newtown Square, Pa. Pennsylvania's overall budget is set to increase by 3 percent this year, providing funds for IT investments by other state agencies, Gerhards said.

State budget conditions aren't likely to change much in the next few months, said policy analyst Jenny. 'There are no signs that things are getting a lot worse fast but also no signs that they are getting better.'